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Sam
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Category: Tax
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i have a house i pay intested only on were my wife and kids

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i have a house i pay intested only on were my wife and kids live i all so have a ltd company this has a balance 0f 117k in it i own 102k on the house iam no longer able to work as i have tinitas and being a builder i can not carry on so iam going to lose the house i pay for my kids to live in at some point can my company buy this house of me so my famliy can continue to live there at this point i can look for a job that iam able to do and pay a rent to my company for it when my kids have grow up the company can then sell the house i dont live in this house as we are separated and have been for 3 to 4 years thanks
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question, my name is XXXXX XXXXX I am one of the UK tax experts here on Just Answer.

The company can buy the property - but this will trigger a capital gain as its treated as a disposal - and there also may be stamp duty to pay also, so make sure you have sufficient funds to pay these charges.
Also if you still have a mortgage on the property (which seems to be the case) then the lender may take issue to this arrangement, and it not be possible without their permission.

The other concern is then when you come to sell this property you then will be subjected to corporation tax, as you will on the rental income - so you actually will be far worse off by this action.

You do not indicate the age of your children, but it could be worthwhile considering putting the property in trust - and for this you will need to consult with a financial adviser (we do have them on the UK finance forum here on Just Answer) OR even transferring the property into your separated wifes' name - with perhaps a trust agreement that this is for the benefit of the children when they reach an adult age.
These options would be far more beneficial but again might be restricted by any mortgage and therefore the lenders agreement


Thanks

Sam
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Customer: replied 3 years ago.

i yes i own 102k on the house but the house is only vauled at around 95k now i was looking to pay the full house of with the funds from the company if i was to draw the money out from the company and pay my tax on the drawing id not have the amount left to pay for the house the inportant thing at this time due to my ears is to keep a roof over my kids head as i may be unable to work for some time

Expert:  Sam replied 3 years ago.
Hi Gary

Thanks for your response

What you owe on the house has no bearing - its what you initially bought for. If this was for more than £85K then you will have a loss rather than a gain to consider for capital gain purposes, and there will be no stamp duty to consider.

I can see that your thought process is that if the company buys the house, you feel this would
1) prevent you from having to pay any tax on drawing money out of the company
2)Ensure that the house is secured with a full purchase

However, as this is a personal purchase and not for the company to trade with or make use of, HMRC could treat this as you having used funds from the company to make this purchase (even if the property is in the limited companies name) so this is a risk you will have to consider -
Plus the position of a taxable benefit whilst your family consider to live there and you not having funds to pay the rent - this creates a chargeable benefit on you - on which tax would be due.

Finally the loss of the annual exemption allowance for capital gains when the property is finally sold from the company - and finally the loss of entrepreneurs relief on the closing down of the company.

My initial thoughts are that this is a bad idea, but I would suggest that you seek the services of a local accountant to establish the cost to you short and long term - which they will be in a position to do, as they can have access to all your paperwork and accounts and then work out for you,the true out of pocket cost - and whether this is feasible long term, but equally as importantly until you secure employment.

Thanks

Sam

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